FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 33-98288
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
Piercing Pagoda, Inc. Employee Stock Purchase Plan
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive offices:
Piercing Pagoda, Inc.
3910 Adler Place
Bethlehem, PA 18017
<PAGE>
Independent Auditors' Report
To the Compensation Committee of the
Board of Directors of Piercing Pagoda, Inc.
We have audited the accompanying statements of financial condition of the
Piercing Pagoda, Inc. Employee Stock Purchase Plan (the "Plan") as of March
31, 1998 and 1997, and the related statements of income and changes in plan
equity for the years ended March 31, 1998 and 1997 and the period from
November 1, 1995 (inception) to March 31, 1996. These financial statements
are the responsibility of the Plan's administrator. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by the Plan's administrator, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of the Plan as of March
31, 1998 and 1997, and the income and changes in plan equity for the years
ended March 31, 1998 and 1997 and the period from November 1, 1995
(inception) to March 31, 1996, in conformity with generally accepted
accounting principles.
Allentown, Pennsylvania KPMG Peat Marwick LLP
June 8, 1998
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Statements of Financial Condition
March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Investment in Piercing Pagoda, Inc. common stock
(16,826 and 9,412 shares, cost of $305,029 and
$138,127, at March 31, 1998 and
1997, respectively) $ 525,813 237,653
Participant contributions receivable from Piercing
Pagoda, Inc. 56,974 40,274
Total assets $ 582,787 277,927
======= =======
Equity
Plan equity $ 582,787 277,927
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Statements of Income and Changes in Plan Equity
Years ended March 31, 1998 and 1997 and Period from November 1,
1995 (inception) to March 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income:
Participant contributions $ 216,363 $ 141,358 41,438
Unrealized appreciation on common
stock 121,258 94,145 5,381
Realized gains on distributions 20,724 3,320 -
-------- --------- ------
358,345 238,823 46,819
Withdrawals:
Distributions to Plan participants,
at market value (53,485) (7,715) -
-------- ---------- ------
Increase in plan equity 304,860 231,108 46,819
Plan equity at beginning of period 277,927 46,819 -
-------- --------- ------
Plan equity at end of period $ 582,787 $ 277,927 46,819
======= ======= ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
March 31, 1998, 1997 and 1996
(1) Description of the Plan
The following description of the Piercing Pagoda, Inc. Employee Stock
Purchase Plan (the "Plan") provides general information only.
Participants should refer to the Plan prospectus for more complete
information.
The purpose of the Plan is to encourage and assist employees of
Piercing Pagoda, Inc. (the "Company") and its subsidiary, by giving
them the opportunity to acquire an equity interest in the Company
through the purchase of shares of the Company's common stock at a
discount. A maximum of 96,000 shares of common stock may be purchased
under the Plan. The Plan was adopted by the Board of Directors in
October 1995 and was approved by the stockholders of the Company in
September 1996. The Plan began operations on November 1, 1995.
(2) Summary of Significant Accounting Policies
Investment Valuation
Investments are stated at market value based upon available market
quotations. Market value was $31.25 and $25.25 per share at March 31,
1998 and 1997, respectively. The cost values of investments under the
Plan are calculated using an average cost methodology.
Fiscal Year
The Plan's fiscal year ends March 31st.
Administrative Expenses
All administrative expenses of the Plan are paid for by the Company.
Federal Income Tax
The Plan is intended to qualify as an "employee stock purchase plan"
under Sections 421 and 423 of the Internal Revenue Code of 1986. Under
existing federal income tax laws, the Plan is not subject to federal
income tax. When any shares of stock are sold by a participant, any
gain or loss must be recognized by that participant.
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements, Continued
March 31, 1998, 1997 and 1996
(3) Purchase and Distribution of Shares
Purchases are made by the Plan quarterly with the shares purchased
deposited into a brokerage firm account maintained for the Plan. The
common stock is purchased at a price equal to the lower of 85% of the
closing market price on the Nasdaq market on the first or last day of
the purchase period.
In the event of the termination of a participant's employment for any
reason, including retirement or death, all shares of common stock then
held for his or her benefit shall be registered in such individual's
name. Any amounts credited to such individual prior to the purchase of
common stock shall be refunded, without interest, to such individual.
Additionally, participants may elect, in accordance with Plan
provisions, to have common stock registered in the participant's name
or have the Plan sell shares credited to their account and receive
cash.
(4) Participant Contributions Receivable
Participant contributions receivable from the Company represents
payroll deductions for the most recent purchase period for which a
stock purchase has not yet been made and deductions which are less
than the cost of one share of common stock that will be carried
forward for use in purchasing shares on the next quarterly purchase
date.
(5) Unrealized Appreciation
Changes in unrealized appreciation in common stock of the Plan are as
follows:
1998 1997 1996
---- ---- ----
Unrealized appreciation:
Beginning of period $ 99,526 $ 5,381 -
End of period 229,784 99,526 5,381
------- ------ -----
Change in unrealized appreciation $ 121,258 $ 94,145 $ 5,381
======= ====== ======
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements, Continued
March 31, 1998, 1997 and 1996
(6) Realized Gains on Distributions
The realized gains on distributions of common stock as a result of
participant withdrawals is as follows:
1998 1997 1996
---- ---- ----
Value of shares distributed:
Market value $ 53,485 $ 7,643 -
Cost basis 32,761 4,323 -
------ ----- ------
Realized gains on distributions
to participants $ 20,724 $ 3,320 -
====== ===== ======
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Index to Exhibit
Exhibit No. Description Page
1 Consent of KPMG Peat Marwick LLP, 10
Independent Certified Public Accountants
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan Administrator has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
Piercing Pagoda, Inc. Employee Stock
Purchase Plan
BY: Compensation Committee of Piercing
Pagoda, Inc. Board of Director
as Plan Administrator
/s/ Alan R. Hoefer
Alan R. Hoefer
/s/ Mark A. Randol
Mark A. Randol
Dated: June 22, 1998
Consent of Independent Auditors
The Board of Directors
Piercing Pagoda, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
33-98288) on Form S-8 of Piercing Pagoda, Inc. of our report dated June 8,
1998, relating to the statements of financial condition of the Piercing
Pagoda, Inc. Employee Stock Purchase Plan as of March 31, 1998 and 1997, and
the related statements of income and changes in plan equity for the years
ended March 31, 1998 and 1997 and the period from November 1, 1995
(inception) to March 31, 1996, which report is included in the March 31,
1998 Annual Report on Form 11-K of the Piercing Pagoda, Inc. Employee Stock
Purchase Plan.
Allentown, Pennsylvania KPMG Peat Marwick LLP
June 22, 1997
